Construction contracts typically require contractors to provide specific insurance protections for owners, general contractors, and other upstream parties. These obligations often extend beyond the primary general liability policy and apply to the entire liability program, including umbrella and excess liability policies.
As construction projects grow larger and catastrophic claims increasingly reach excess layers, even minor differences in policy language can create uninsured exposures, contractual compliance issues and significant balance sheet risk.
Runners should never assume excessive labeled policy follow the form automatically meets these contractual requirements. Contractors, like their brokers, must understand that each excess policy is a separate insurance contract with its own terms, conditions, exclusions and limitations. Where these provisions differ from the underlying policy, the excess policy controls coverage.
These differences can also cascade throughout the responsibility tower, as each successive monitoring policy can adopt the constraints of the layer below it.
Accordingly, contractors should verify that their broker is reviewing all umbrella and excess policies to confirm that contractual risk transfer provisions remain intact throughout. whole liability program, rather than assuming the protections provided by the primary policy through the tower.
Below are some of the more common excess policy provisions and why they should be reviewed closely before binding coverage.
1. Additional insured status
Most follow form excess policies recognize additional insureds who meet the requirements of the underlying policy. However, brokers should confirm that the excess policy does not reduce this coverage, impose additional qualification requirements, or require scheduled approvals before recognizing additional insured status.
2. Other insurance and primary and non-contributory coverage
‘Additional insured’ status alone often does not meet the requirements of the construction contract. There is a common gap in the “Other Insurance” provision of the excess policy, which may indicate that the coverage is excessive over any other collection insurance. except that this insurance was written specifically to apply the policy excess. Without the language preserving primary, non-contributory coverage when required by a written contract, the excess insurer may assert that its coverage is greater than the additional insured’s insurance.
Your broker should confirm that each excess layer expressly provides primary, non-contributory coverage, or follows the primary, non-contributory provisions of the underlying policy that provide the required contractual protection.
3. Waiver of subrogation
Construction contracts often require waivers of subrogation. Some excess insurers retain their right of recovery against third parties without recognizing the contractual waivers contained in the underlying policy. Where required by contract, your broker should confirm that the excess policy follows the underlying waiver or is specifically approved to provide it.
4. Defense obligations
Construction contracts often require defense obligations to be consistent with the primary policy. While many excess policies assume the underlying insurer’s defense obligations after the underlying limits are exhausted, others reserve the right— but not him duty—Defend or defend only in limited circumstances. Brokers must verify that defense obligations remain consistent throughout the liability tower.
5. Advance notice of cancellation
Many construction contracts require advance notice of policy cancellation to owners or other upstream parties, but most excess policies do not. automatically expand these notification provisions. If notice is required throughout the liability program, excess policies must be approved accordingly.
General notice provisions are generally preferable for contractors with numerous projects because they eliminate the need to schedule each owner individually. However, some insurers warn about it only to the entities specifically listed below.
6. General aggregate limits per project
General aggregate limits per project should never be assumed to exceed the program. While the underlying general liability policy may apply aggregate limits separately to each project, excess tracking policies often do not. Your agent should review both the forms and approvals schedule and the Limits section of each excess policy to determine how aggregate limits apply. Where construction contracts require aggregate limits per project, the excess policy should expressly provide that the aggregate limits apply in the same manner as the underlying insurance.
Your review should also confirm that the excess policy does not adversely restrict the number of aggregates per project or the total aggregate limits available across multiple projects, as these limitations can significantly reduce available coverage and create contractual compliance issues.
7. Restrictions and exclusions of coverage
Construction contracts often require contractors to maintain liability insurance that does not contain exclusions or other provisions that materially restrict coverage for operations contemplated by the contract. Common prohibited exclusions include:
- XCU (Explosion, Collapse and Underground Utilities)
- Residential construction
- Operations performed with products
- EIFS or exterior cladding
- Project-specific exclusions
- High-rise residential construction
Because many excess insurers issue proprietary handwritten forms, your broker should review both the forms and approvals schedule and the policy wording to confirm that no prohibited restrictions have been introduced into the excess program.
Conclusion
The bottom line? the sentence follow the form should never be treated as a substitute for careful policy review. Contractors who have verified that their excess liability program reflects the contractual requirements of the underlying policy are better positioned to avoid uninsured liability, breach of contract claims and unnecessary balance sheet exposure.
About the author
Nathan Baumgartner, CRIS, CPCU, is Assistant Vice President with American Globalwith great experience in primary and excess lines. With nearly 25 years of construction insurance experience, Nate leverages his extensive knowledge to support our service teams in identifying and recommending coverage terms, leading new and renewal account strategy, negotiating with carriers, and pitching to clients and prospects.
